How do you raise taxes while keeping voters happy? That is a key question for Finance Minister P. Chidambaram as he prepares to present his budget to Parliament on Feb. 28. He will need to explain how the government will be able to increase its revenues, while also encouraging the business investment and boosting consumer spending.

India Real Time spoke to a few experts on how they expect Mr. Chidambaram to try to walk this tightrope.

Tax for the rich: India recently joined the ranks of many Western countries with talk of raising taxes for wealthy individuals. C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, suggested that such a tax could be introduced in the upcoming federal budget, but didn’t share any specifics.

Though India Inc. has vehemently opposed any such tax, experts believe there’s a high chance it will be introduced.

Sanjay Sanghvi, partner at law firm Khaitan & Co., expects “some kind of additional surcharge on an income beyond a certain threshold.”

A surcharge is a tax on tax. For instance, if your tax liability for a year is 10,000 rupees ($185), the surcharge would be a tax on 10,000 rupees. Tax consultants expect a surcharge of around 10%, which in this case would translate to 1,000 rupees. Thus, the individual’s total tax liability would be 11,000 rupees ($203).

The key question is: where will the government draw the line? Will heavier taxes apply to someone with a total annual income of more than 2 million rupees ($36,700), or of more than 10 million rupees?

Tax breaks: A standard practice of Indian finance ministers is to give some minor tax breaks to all individuals, and Mr. Chidambaram could keep this tradition alive.

Last year, then Finance Minister Pranab Mukherjee raised the threshold below which individuals didn’t have to pay tax. Following that, an annual income of less than 200,000 rupees was exempt from tax, up from 180,000 rupees previously.

This year there could be a “further increase in the minimum exemption limit,” says Sudhir Kapadia, national tax leader at consulting firm Ernst & Young in India.

New Income Tax Laws: India’s 50-year-old income tax laws will be around a while longer because the Direct Taxes Code, which will replace the extant Income-Tax Act, is not yet ready.

The Direct Taxes Code has been revised several times in recent years, and was supposed to go into effect on April 1. But when Mr. Chidambaram took over as finance minister in August, he said the law needed a fresh look.

“I don’t think it’s a priority,” says Mr. Kapadia of Ernst & Young.

Incentives for equity investments: Mr. Chidambaram said last month that he would make the Rajiv Gandhi Equity Savings Scheme, a program that gives tax breaks to first-time stock investors, more attractive.

He could do so by raising the tax break for making stock and stock mutual fund investments. Currently, for an equity investment of up to 50,000 rupees in a year, individuals can save a maximum of 5,000 rupees – a paltry sum for many.

Diesel car tax: There may be bad news for owners of diesel cars. Some types of diesel cars have historically attracted a lower duty compared to similar petrol cars, but this may change.

A diesel car with an engine capacity of between 1300 cc and 1500 cc currently incurs a duty of 12%, whereas a petrol version with the same engine capacity draws duty at 24%.

“There has been talk that [duty on] diesel cars might also be raised,” says Vivek Mishra, leader of the indirect tax practice at consulting firm PricewaterhouseCoopers in Delhi.

Car companies will likely pass on that additional cost to consumers.

Excise duty: Last year, the government increased the overall excise tax by 2 percentage points to 12%. This tax is applicable to goods produced in the country, such as consumer durables like washing machines and refrigerators. Manufacturers of these goods typically add this cost to the sale price of their goods.

Some tax experts believe that the government could further increase the excise duty by another two percentage points this year to 14% in a bid to increase its revenues.

“There is a reasonable case for it,” says Rajeev Dimri, head of the indirect tax practice at law firm BMR Advisors.

Goods & Services Tax: As part of the government’s plan to overhaul India’s tax system, a few years ago there was talk of introducing a single tax to replace a bevy of state taxes on goods and services.

Every year, the finance minister makes some noises about implementing the Goods & Services Tax soon, and Mr. Chidambaram may do so too.

But tax experts believe that final implementation may be years away, as states have yet to agree on a common tax rate. Also, the Indian constitution would need to be amended for this law to be introduced.

Mr. Dimri of BMR says he’ll be watching out for some specific statements from Mr. Chidambaram about whether central-state issues have been sorted out. “That would be a huge step forward,” he says.

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